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21.8.2012 Official
Journal
of
the
European
Union L
225/1
II
(Non-legislative acts)
DECISIONS
COMMISSION DECISION
of 20 September 2011
on State aid granted by Germany to HSH Nordbank AG SA.29338 (C 29/09 (ex N 264/09))
(notified under document C(2011) 6483)
(Only the German text is authentic)
(Text with EEA relevance)
(2012/477/EU)
THE EUROPEAN COMMISSION,
(2) By
Decision
of
29
May
2009
in
case
N
264/09
( 2 ) (here
inafter ‘the Rescue Decision’), the Commission authorised
the recapitalisation and the risk shield for HSH for a
period of six months, as rescue measures compatible
with the internal market on the basis of Article 107(3)(b)
Having regard to the Treaty on the Functioning of the European
of the Treaty on the Functioning of the European Union
Union, and in particular the first subparagraph of Article 108(2)
(TFEU) (
thereof,

3 ). In the Decision the Commission required the
German authorities to submit a restructuring plan within
three months.
Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,
(3) On
1
September
2009
Germany
notified
a
restructuring
plan to the Commission.
Having called on Member States and other interested parties to
submit their comments pursuant to those provisions ( 1 ),
(4) On
22
October
2009
the
Commission
adopted
a
Decision initiating the procedure under Article 108(2)
TFEU with regard to the risk shield and the valuation
of HSH in the context of the recapitalisation (hereinafter
Whereas:
the ‘Decision initiating the procedure’) ( 4 ).
(5) On 21 November 2009 the Decision initiating the
1. PROCEDURE
procedure was published in the Official Journal of the
European Union (
(1) On
30
April
2009
Germany
notified
the
Commission
of

5 ) and interested parties were requested
state aid measures for HSH Nordbank AG (hereinafter
to submit their comments within two weeks from the
‘HSH’) in the form of a guarantee comprising a EUR 10
publication date.
billion second-loss tranche (hereinafter ‘the risk shield’)
and a EUR 3 billion capital injection (hereinafter ‘the
( 2 ) Commission Decision of 29 May 2009 in case N 264/09 HSH
recapitalisation’). The measures had been provided indi
Nordbank AG (OJ C 179, 1.8.2009, p. 1).
(
rectly by the public-sector owners of HSH, namely the

3 ) With effect from 1 December 2009, Articles 87 and 88 of the EC
Treaty have become Articles 107 and 108, respectively, of the Treaty
Free and Hanseatic City of Hamburg and the Land of
on the Functioning of the European Union; the two sets of
Schleswig-Holstein (hereinafter referred to separately as
provisions are in substance identical. For the purposes of this
‘Hamburg’ and ‘Schleswig-Holstein’ respectively, or
Decision references to Articles 107 and 108 of the TFEU should
together as ‘the public-sector owners’).
be understood as references to Articles 87 and 88 of the EC Treaty
when appropriate.
( 4 ) Commission Decision of 22 October 2009 in case N 503/09 HSH
( 1 ) Commission Decision in case C 10/09 (ex N 138/09) ING
Nordbank AG (OJ C 281, 21.11.2009, p. 42).
(OJ C 158, 11.7.2009, p. 13).
( 5 ) OJ C 281, 21.11.2009, p. 42.

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L 225/2
EN
Official Journal of the European Union
21.8.2012
(6) On 30 November and 11 December 2009 the
(13) The
restructuring
plan,
risk
shield
and
recapitalisation,
Commission received comments from Sparkassen- und
and the valuation of the shielded portfolio were
Giroverband für Schleswig-Holstein and from
discussed by the German authorities and the Commission
Schleswig-Holsteinische Sparkassen-Vermgensverwal
departments in a series of meetings, teleconferences and
tungs- und Beteiligungs GmbH & Co. KG (hereinafter
other information exchanges in the period between
referred to separately as ‘SGVSH’ and ‘SVB’ respectively,
October 2009 and June 2011, including on 5, 21 and
or together as ‘the savings bank associations’).
27 October, 4, 12, 13, 18, 27 and 30 November, 7, 9,
14 and 15 December 2009, 14 and 19 January,
21 April, 5, 12, 20, 26, 28 and 31 May, 15 June, 13,
16, 22 and 23 July, 30 September, 22 November, 9 and
22 December 2010, 23 and 28 February, 18 March,
(7) On
3
December
2009
a
group
of
investors
advised
by
1 and 8 April, 25 May and 7, 16 and 29 June 2011.
J.C. Flowers & Co. LLC (hereinafter ‘Flowers’) requested an
The final version of the restructuring plan was submitted
extension of the deadline to submit comments, which
on 11 July 2011.
was granted by the Commission on 7 December 2009.
The Commission received their comments on
17 December 2009.
(14) On
5
September
2011
Germany
submitted
the
list
of
commitments that is attached in Annex I to this
Decision.
(8) On
1
December
2009
Germany
requested
an
extension
of the deadline to submit comments, which was granted
by the Commission on 7 December 2009. On
7 December 2009, HSH also requested an extension of
the deadline to submit comments, which was granted by
the Commission on 17 December 2009. On
2. DESCRIPTION OF THE BENEFICIARY
17 December 2009, Germany forwarded joint
comments from the public-sector owners and HSH on
HSH Nordbank AG
the Decision initiating the procedure.
(15) The HSH group is the fifth-largest German Landesbank,
with head offices in Hamburg and Kiel. It is a public
limited company (Aktiengesellschaft), established on
2 June 2003 as the result of the merger between
(9) On
2
December
2009
a
meeting
took
place
between
Hamburgische Landesbank and Landesbank Schleswig-
Flowers, the savings bank associations, the German auth
Holstein. In October 2006, Flowers ( 6 ) acquired 24,1 %
orities and the Commission.
of HSH shares (26,6 % of voting rights) from WestLB,
with a view to an initial public offering (IPO) of HSH
in 2008.
(10) On
21
December
2009
the
Commission
sent
Germany
the non-confidential versions of the comments submitted
by interested parties and requested Germany to comment
(16) On
31
December
2008
HSH
had
a
balance
sheet
total
of
within one month.
EUR 208 billion and risk-weighted assets (‘RWA’) of
EUR 112 billion.
(11) On
18
January
2010
Germany
forwarded
the
response
made by the public-sector owners to the comments by
Flowers and the savings bank associations.
(17) After the implementation of the measures approved by
the Commission in the Rescue Decision on 29 May
2009, the ownership structure of HSH was as follows:
Hamburg 10,89 %; Schleswig-Holstein 10,42 %; HSH
Finanzfonds AR, a public-law institution established
(12) As regards the risk shield, and in particular the valuation
and controlled in equal shares by Hamburg and
of the portfolio of assets whose risk was covered by the
Schleswig-Holstein, 64,18
%; SGVSH 4,73
%; SVB
risk shield (‘the shielded portfolio’), several meetings, tele
0,58 %; and Flowers 9,19 % ( 7 ).
conferences and other information exchanges between
the German authorities and the Commission took place
( 6 ) The investors advised by Flowers are: HSH Alberta I LP, HSH Alberta
between September 2009 and February 2010. The
II LP, HSH Luxembourg Sàrl., HSH Delaware LP, HSH Alberta V LP,
German authorities submitted additional information,
HSH Coinvest (Alberta) LP, and HSH Luxembourg Coinvest Sàrl.
inter alia, on 6, 20, 21, 22, 23 and 29 October, 11,
( 7 ) Before the implementation of the rescue measures the respective
shareholdings had been as follows: Hamburg 30,41 %, Schleswig-
12, 16 and 27 November and 17 December 2009, 26
Holstein 29,10 %, SGVSH 13,20 %, SVB 1,62 % and Flowers
and 27 January and 19 February 2010.
25,67 %.

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EN
21.8.2012 Official
Journal
of
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European
Union L
225/3
(18) HSH is a commercial bank, its core region is northern
(22) In
mid-July
2008,
HSH’s
shareholders
decided
to
increase
Germany and its main focus is on merchant and private
its capital base with a view to financing its growth. The
banking. The merchant banking activities are concen
capital measures had a volume of nearly EUR 2 billion,
trated on shipping, corporate banking, transportation,
and around EUR 1,26 billion of that figure was fresh
real estate and renewable energy projects. HSH is the
funds.
world’s largest provider of ship finance and has a
significant market share in aviation financing (part of
its transportation business unit). As at December 2008
HSH was present in 21 major financial centres in Europe,
Asia and America.
(23) The first part of the capital measures consisted of a
conversion into ordinary shares of all silent participations
(stille Beteiligungen) totalling EUR 685 million ( 12 ), and
preference shares, totalling EUR 57 million, held by the
public-sector owners. At the time of the conversion,
Flowers signed a cash equity issue in order to avoid a
dilution of their shareholdings ( 13 ). As a result, HSH
(19) HSH
is
one
of
the
German
public
banks
which
until
received an additional EUR 300 million or thereabouts.
18 July 2005 benefited from the unlimited State guar
antees Anstaltslast and Gewhrtrgerhaftung ( 8 ).
(24) As a second part of the capital measures the owners
made a new convertible silent capital contribution,
totalling EUR 962 million. The public and private share
(20) In the beginning of the 1990s asset and capital transfers
holders participated in the silent partnership in line with
of EUR 523 million took place that favoured HSH’s
the ratio of their shareholdings (public EUR 660 million,
predecessor institutes, Hamburgische Landesbank and
private EUR 240 million). An additional EUR 62 million
Landesbank Schleswig-Holstein. On 20 October 2004
was taken over by the private shareholders. With effect
the Commission decided that those transfers were incom
from 31 December 2010, these silent partnerships were
patible state aid and had to be recovered (
converted into ordinary shares.

9 ). HSH had to

repay its public-sector owners a total amount of
EUR 756 million, including interest. It did so in two
instalments, on 31 December 2004 and 3 January 2005.
(25) Germany informed the Commission about the capital
measures described in recitals 21 to 23. The Commission
considered the investments by the public-sector share
holders to be in conformity with the market economy
investor principle, because a private investor participated
(21) In order to compensate for the capital outflow, the share
significantly in the transaction on the same conditions as
holders increased HSH’s capital by EUR 556 million on
the public-sector shareholders. On 1 August 2008 the
20 July 2005 ( 10 ). The capital increase was provided from
Commission informed Germany that it would not
own funds in combination with so-called partial
pursue the issue.
payments. As a result of this mechanism the ownership
structure changed only slightly. On 6 September 2005
the Commission decided that the capital increase was in
line with the market investor principle, and thus did not
constitute state aid ( 11 ).
(26) In
the
period
1999-2009, HSH
registered
cumulated
losses of EUR
1,85 billion and paid cumulated
( 8 ) Anstaltslast conferred rights on a financial institution vis-à-vis its
dividends of EUR 354 million to its public-sector
owners, whereas Gewhrtrgerhaftung provided for rights of the
creditors of the financial institution vis-à-vis the owners. Those
owners. In the same period the public-sector owners
guarantees have been abolished pursuant to the Commission
recapitalised HSH with EUR [4-5] (*) billion of new
Decision in case E 10/2000 (OJ C 146, 19.6.2002, p. 6 and OJ
capital and guaranteed liabilities of up to EUR 166
C 150, 22.6.2002, p. 7). According to that Decision all liabilities
billion.
that arise in a transitional period from 2001 to 2005 which mature
before 2015 are still covered by the guarantees. As at 31 December
2009 liabilities covered by those guarantees amounted to EUR 56
( 12 ) Hamburg EUR 108,2 million, Schleswig-Holstein EUR 498,1
billion.
million, the SGVSH EUR 78,3 million.
( 9 ) Commission Decisions C(2004) 3928 final and C(2004) 3930 final
( 13 ) At the end of 2007, the public-sector shareholders of HSH had
of 20 October 2004 on Hamburgische Landesbank – Girozentrale
already converted silent participations of EUR 578 million into
(case C 71/02) and Landesbank Schleswig-Holstein – Girozentrale
ordinary shares and, in that connection, Flowers bought a portion
(case C 72/02).
of the new shares for EUR 166 million in order to avoid a dilution
( 10 ) EUR 488 million in ordinary share capital and EUR 68 million in
of their shareholdings. That transaction, conducted on equal terms,
the form of preference shares.
had already been agreed between the public and private share
( 11 ) Commission Decision of 6 September 2005 in case NN 71/05 –
holders in 2006, when the trusts entered into the capital of HSH.
Capital increase HSH Nordbank AG.
(*) Confidential information […]

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L 225/4
EN
Official Journal of the European Union
21.8.2012
Table 1
HSH financial track record for public-sector owners 1999–2009 ( 14 )
Business year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Profit and Loss (EUR million) ( 1 ) 111 110 204 239 261 127 400 460 270 –
3
195 –
838
Cumulated Profit and loss (EUR
111 221 425 664 925 1
052 1
452 1
912 2
182 –
1
013 –
1
851
million)
Dividend payments to public-
36 44 72 96 105
0
0
sector owners (EUR million)
Cumulated dividend payments to
36 80 153 248 354 354 354
public-sector owners (EUR
million)
New capital injection by owners
[300-
0
0 [700- 3 000
(EUR million) according to local
600]
1 400]
GAAP
Cumulated capital injection by
[300-
[300-
[300- [1 000-
[4 000-
public-sector owners (EUR
600]
600]
600]
2 000]
5 000]
million)
Risk shield — guarantee (EUR
10
billion)
Guaranteed liabilities (EUR
162 166 152 144 161 88 78 75 73
billion), of which
Gewhrtrgerhaftung (EUR billion) 162 166 152 144 161 88 78 65 56
SoFFin guarantees (EUR billion)
0
0
0
0
0
0
0 10 17
( 1 ) 1999-2006 figures local GAAP, 2007-2009 IFRS.
(27) Historically HSH has been rated in the AA range by all
agencies’ view that HSH possessed adequate financial
three major rating agencies ( 15 ). The long-term rating has
strength with a limited but valuable business franchise.
reflected the unlimited state guarantees provided by
According to Moody’s BFSR methodology, banks rated at
HSH’s public-sector owners. The assumption of future
C display either acceptable financial fundamentals within
support from the public-sector owners remains a
a predictable and stable environment or good financial
significant factor in HSH’s credit rating, which includes
fundamentals within a less predictable and stable
a rating uplift ( 16 ) of 7 notches by Fitch. Moody’s assigns
operating environment.
in total 7 notches support uplift, of which one notch is
for the support provided by the public-sector owners
(regional support).
(29) In
July
2004
Fitch
started
to
provide
a
rating
for
HSH’s
(28) The
C
stand-alone
rating
(for
Moody’s
‘Bank
Financial
non-guaranteed obligations in an A range, keeping its
Strength Rating’, or ‘BFSR’) ( 17 ) reflected the rating
stand-alone rating at C. Moody’s and S&P followed
with ratings for non-guaranteed obligations in July
( 14 ) Before 2 June 2003 (date of merger), cumulated data for Hambur
2005. Until the beginning of the crisis in 2008, the
gische Landesbank and Landesbank Schleswig-Holstein.
ratings of HSH remained stable.
( 15 ) Fitch, Moody’s and Standard & Poor’s (‘S&P’).
( 16 ) The rating uplift corresponds to the number of notches the credit
rating of an institution exceeds its stand-alone rating (or Bank
Financial Strength Rating (‘BFSR’)) due to external credit support
elements (i.e. the probability that the bank will receive external
support from third parties such as its owners, its industry group,
(30) Since
October
2008,
two
trends
can
be
observed
in
the
or official institutions).
ratings of HSH. The first trend started in October 2008
( 17 ) According to Moody’s definition of stand-alone ratings, BSFRs
represent the rating agency’s opinion of a bank’s intrinsic safety
when HSH’s stand-alone ratings were successively down
and soundness and, as such, exclude certain external credit
graded to the lower D and higher E range by Fitch and
support elements (i.e. public ownership). BFSRs do not take into
Moody’s (E being the lowest possible BFSR rating by
account the probability that the bank will receive such external
Moody’s) ( 18 ). As reasons for the downgrading the
support, nor do they address risks arising from sovereign actions
that may interfere with a bank’s ability to honour its obligations.
BFSRs are a measure of the likelihood that a bank will require
( 18 ) The rating category E contains banks with very modest intrinsic
assistance from third parties such as its owners, its industry
financial strength, with a higher likelihood of periodic outside
group, or official institutions.
support or an eventual need for outside assistance.

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EN
21.8.2012 Official
Journal
of
the
European
Union L
225/5
agencies referred to (a) the significant risk stemming
(34) On
29
April
2009,
the
Bundesanstalt
für
Finanzdien
from HSH’s cyclical asset base and in particular the
stleistungsaufsicht (German Banking Regulator, here
shipping assets; (b) HSH’s limited access to capital
inafter ‘BaFin’) informed HSH that, in light of its
while running a highly capital-intensive lending
prudential situation, BaFin considered that HSH had
business; and (c) HSH’s weak and low profitability
difficulties meeting the regulatory capital requirements.
compared to pre-crisis levels due to lower asset yields,
BaFin announced that it would order a moratorium
relatively higher risk-provisioning levels in asset-based
pursuant to paragraph 47 of the German Banking Act
finance and significantly increased funding costs
if the owners of HSH did not reinforce its capital basis.
compared to the pre-crisis environment. Furthermore,
the agencies raised fundamental concerns about HSH’s
business profile. Because HSH does not have access to
retail customers to any significant extent, the bank will
continue to rely on the wholesale markets where it will
(35) On
6
May
2009,
S&P
downgraded
HSH’s
credit
rating
by
have difficulties securing funding. Compliance with more
two notches from A to BBB + with a negative outlook.
stringent regulatory requirements on capitalisation,
liquidity buffers, and funding mismatches would be a
particular challenge for pure wholesale banks like HSH.
3. THE AID MEASURES
(36) In
May
and
June
2009
HSH
obtained
aid
of
two
kinds
(31) The
second
trend
started
in
May
2009,
when
S&P
down
from Schleswig-Holstein and Hamburg: the EUR 3 billion
graded HSH’s credit rating to BBB+, followed by Moody’s
recapitalisation and a EUR
10 billion second-loss
and Fitch downgrading HSH to A3/A- in May and July
guarantee measure (the ‘risk shield’). In addition HSH
2010. As justification for the downgrading the rating
received aid from SoFFin in the form of liquidity guar
agencies pointed to the limit on further support by the
antees which in the end amounted to EUR 17 billion
public-sector owners due to (a) the EU state aid rules and
(hereinafter ‘liquidity guarantees’).
(b) their budgetary restrictions. The extent of the past
support measures represented a high burden on the
public-sector owners’ financial strength so that they
would be less inclined to offer further support. An
important aspect in assessing the public-sector owners’
3.1. THE RECAPITALISATION
further availability to offer support measures was the
large amount of grandfathered debt
( 19 ) that then
(37) The
recapitalisation
consisted of a cash injection of
remained on HSH’s balance sheet.
EUR 3 billion in total of core Tier 1 capital in
exchange for ordinary shares with voting rights. The
shares were issued by HSH and fully subscribed by
HSH Finanzfonds AR. The latter is an institution
The events leading up to the rescue measures
under public law established, owned and controlled by
Hamburg and Schleswig-Holstein in equal shares.
(32) Already
in
2007
the
impact
of
the
financial
crisis
led
to
EUR 1,3 billion of loss-provisioning in HSH’s USD 30
billion structured credit portfolio (CIP)
( 20 ). The
contagion effect on the real economy adversely affected
the traditional loan portfolio and had a severe impact on
(38) HSH
Finanzfonds AR obtained the financial means
the quality of HSH’s claims related to its shipping, trans
needed for the recapitalisation by issuing bonds on the
portation, real estate and renewable energy project
capital markets. Its liabilities resulting from the bond
financing. Additional loss-provisioning of EUR
1,6
issues are guaranteed equally by Hamburg and
billion on the CIP and loan loss provisions of EUR 1,9
Schleswig-Holstein as partial debtors and by means of
billion on the loan portfolio significantly contributed to
guarantees to the bond holders. The bonds issued by
the negative result of EUR 3,2 billion in 2008.
HSH Finanzfonds AR serve solely to finance the HSH
recapitalisation. HSH Finanzfonds AR operates
exclusively as a vehicle for Hamburg and Schleswig-
Holstein and does not pursue any other purpose
besides providing the recapitalisation and the risk shield.
(33) The
bankruptcy
of
Lehman
Brothers
in
September
2008
also intensified the refinancing difficulties of HSH, so that
it applied for EUR 30 billion liquidity guarantees with the
Sonderfonds Finanzmarktstabilisierung (German Fund for
Stabilising the Financial Markets, hereinafter ‘SoFFin’).
(39) The
issue
price
of
the
new
shares
was
based
on
a
valuation of HSH by PricewaterhouseCoopers (‘PwC’),
( 19 ) In the context of the so-called ‘grandfathering’ which was agreed as
which arrived at a value in a range between EUR [> 2]
an interim solution, liabilities which were incurred from 18 July
billion and EUR [< 3] billion (EUR [> 19] to EUR [< 28]
2001 to 18 July 2005 and which mature no later than
per share). The average value of HSH based on the
31 December 2015 will continue to be covered by ‘Gewhrtrger
valuation is EUR [2-3] billion (EUR [19-28] per share).
haftung’.
( 20 ) As per 31 December 2007, the CIP contained amongst other assets
The valuation was established before the rating
US subprime and synthetic Collateralised debt obligations.
downgrade of HSH of 6 May 2009. The impact of the

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L 225/6
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Official Journal of the European Union
21.8.2012
downgrading on the value of HSH was not taken into
Composition of the shielded portfolio
account in the valuation, but was considered during the
pricing discussion. The valuation was based on the
(44) Impaired
assets
such
as
assets-backed
securities
(‘ABS’)
assumption that an upgrade to the previous A rating
represent around [3-6] % of the approximately EUR
would be achieved in 2013.
[172] billion portfolio covered by the risk shield. The
majority of the shielded assets consist of customer
loans, HSH’s core activity. The shielded portfolio is
denominated in various currencies including EUR, USD
(40) For
the
EUR
3
billion
in
newly
injected
capital
Hamburg
and GBP.
and Schleswig-Holstein intended to achieve a yearly
remuneration of 10 % (EUR 300 million per year).
Given that HSH’s business plan did not project sufficient
profits for the period 2009-2012 to pay a 10 % dividend
Table 2
on all ordinary shares, the issue price of the new ordinary
shares was reduced by a discounted 10 % dividend
Breakdown of the shielded EUR [172] billion
payment for the period 2009-2012. The present value
approximately of assets
of the 10 % dividend payment for the period 2009-2012
amounts to EUR [650-800] million (EUR [3-6] per
Assets on balance
share). The price for the new shares was fixed at
Category of assets
sheet
% of the
portfolio
EUR 19 per share (EUR [19-28] minus EUR [3-6]).
(in EUR billion)
HSH Finanzfonds AR acquired 157 894 737 new
Customer loans [115
approx] […]
ordinary shares.
Fixed income securities [30
approx] […]
Secured tradable loans ( 1 ) [15
approx] […]
(41) The
savings bank associations and Flowers did not
participate in the recapitalisation. Consequently,
Assets-backed securities [10
approx] […]
following the recapitalisation, their shareholdings were
Guarantees on payments [5
approx] […]
diluted from 13,20 %, 1,62 % and 25,67 % to 4,73 %,
0,58 % and 9,19 % respectively, and the joint direct
Total [172
approx] 100,0
and indirect shareholdings of Hamburg and Schleswig-
Holstein (including the shares held via HSH Finanzfonds
( 1 ) Specific German financial products (Schuldscheindarlehen).
AR) increased from 59,51 % to 85,49 %.
Valuation of the shielded assets
3.2. THE RISK SHIELD
(45) HSH
did
not
have
a
valuation
of
the
whole
portfolio
conducted by external experts before the implementation
(42) The
risk
shield
was
put
in
place
at
the
same
time
as
the
of the risk shield, except for the ABS portfolio and part
recapitalisation in June 2009. It was also provided
of the CIP portfolio, which were valued by Blackrock and
directly by HSH Finanzfonds AR. Neither the savings
by Cambridge Place. At the Commission’s request, HSH
bank associations nor Flowers participated. The risk
conducted a valuation of the shielded portfolio in the
shield consists of a second-loss guarantee in the
period November 2009 to January 2010 based on the
amount of EUR 10 billion, which shelters HSH from
Commission’s severe stress assumptions. The valuation
losses stemming from total assets of about EUR 172
was conducted in cooperation with the Commission’s
billion (EUR 187 billion exposure at default) as of a
experts. The valuation assumptions were in line with
cut-off date in March 2009. The first-loss tranche of
the severe stress scenarios applied by the Commission
EUR 3,2 billion is to be covered by HSH. The second-
in other cases. The valuation was based on the in-
loss tranche of up to EUR 10 billion is to be covered by
depth analysis of a sample of 40 deals representing a
HSH Finanzfonds AR. Losses beyond EUR 13,2 billion
notional amount of EUR 1 billion, i.e. 0,6 % of the
(first- and second-loss tranches together) are to be
total exposure, and a tranche valuation on a large repre
covered by HSH. The transfer value of the shielded
sentative part of the portfolio using Moody’s
portfolio is [around EUR
168] billion ([around
CDOROM ( 21 ) tool. The underlying assumptions were
EUR 172] billion total assets value minus EUR 3,2
discussed with the Commission’s experts. HSH was
billion).
assisted by its external expert Morgan Stanley, who
confirmed the technical accuracy of the calculations.
The capital relief effect of the risk shield at the time of
(43) In
principle,
HSH
can
cancel
the
guarantee
at
any
time,
its implementation was determined to be [around
but until 31 December 2013 the cancellation is limited
EUR 3,5] billion. The accuracy of the method and the
to EUR [2-5] billion in total and at most to EUR [1-4]
underlying calculations used to determine the capital
billion per year. HSH cancelled EUR 1 billion of the
relief effect was confirmed by BaFin in February 2010.
guarantee as of 9 March 2011. On 18 June and again
on 6 September 2011, HSH cancelled another EUR 1
( 21 ) Moody’s Analytics CDOROM is a Monte Carlo simulation model
billion of the guarantee, thus reducing the remaining
used to calculate the expected loss on tranches of a given static
guarantee to EUR 7 billion. BaFin was informed of the
portfolio of assets. It is used by rating analysts at Moody’s Investors
Services to assign ratings on static synthetic CDOs. Similar models
cancellations. BaFin indicated that it would not object to
and methodologies were used to assess expected losses in other
the termination.
impaired assets measures.

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EN
21.8.2012 Official
Journal
of
the
European
Union L
225/7
Remuneration of the risk shield
Table 3
(46) According to the contract on the provision of a
Remuneration of risk shield as proposed by
guarantee concluded between HSH Finanzfonds AR
Germany in different scenarios
and HSH on 2 June 2009, HSH Finanzfonds AR
receives a premium for providing the second-loss
(In EUR million)
guarantee in the amount of 400 bps p.a. on the
Scenario 2 Scenario 3
nominal amount of the guarantee (EUR 10 billion) (here
Scenario 1
(EUR 0
(EUR 5
(EUR 10
inafter the ‘basic premium’). Drawings and cancellations
drawing of
billion
billion
reduce the amount on which the remuneration of
guarantee)
drawing of drawing of
guarantee)
guarantee)
400 bps is paid. Table 3 below represents the total
amount of the cumulative payment in three scenarios:
Basic premium (400 bps [> 1,5] [>
2,5] [>
4]
(a) Scenario 1: HSH’s base case, which assumes that the
on outstanding nominal
guarantee will not be drawn and will be fully cancelled
amount of the guarantee)
by HSH by the end of 2015; (b) Scenario 2: an
intermediate scenario, which assumes a drawing of the
(47) Over the restructuring period the payments of the basic
guarantee to the tune of EUR 5 billion; and (c) Scenario
premium would represent between EUR [100-150]
3: the underlying case of the assets’ valuation, which
million and EUR 405 million per year depending on
assumes that the guarantee will be fully drawn by
the drawing of the guarantee as described in Table 4
[2015-2020] (no cancellations).
below.
Table 4
Projected basic premium (400 bps) payment of HSH to HSH Finanzfonds AR in EUR million
over the restructuring period
(In EUR million)
2009
2010
actual
actual
2011 2012 2013 2014
Scenario 1 (EUR 0 drawing) –
300 –
405 –
[300-350] –
[200-250] –
[150-200] –
[100-150]
Scenario 2 (EUR
5 billion – 300 –
405 –
[300-350] –
[200-250] –
[180-230] –
[150-200]
drawing)
Scenario 3 (EUR 10 billion – 300 –
405 –
[300-400] –
[300-400] –
[300-400] –
[300-400]
drawing)
3.3. LIQUIDITY GUARANTEES
(48) Additionally,
HSH
had
applied
for
SoFFin
guarantees
covering
new
issuances
of
debt
up
to
an
amount of EUR 30 billion. SoFFin approved the issuance of a first tranche of EUR 10 billion at
the beginning of December 2008. The guarantees were approved within the framework of the
German rescue scheme ( 22 ). The remaining EUR 20 billion were to be activated after the submission
of a restructuring plan. The second tranche of EUR 20 billion was activated after submission of the
restructuring plan by HSH to SoFFin on 7 March 2009. As of 30 September 2009, a total of EUR 17
billion had been drawn. As of 1 January 2010, SoFFin reduced the guarantee limit from EUR 30 to
EUR 17 million. The limit was not extended again.
4. THE RESTRUCTURING PLAN
4.1. INITIAL RESTRUCTURING PLAN AND SUBSEQUENT REVISION OF THE FINANCIAL PROJECTIONS
(49) The initial restructuring plan submitted on 1 September 2009 (hereinafter ‘the initial restructuring
plan’) was described in the Decision initiating the procedure (recitals 23 to 28). Additional
information on the restructuring model contained in the initial restructuring plan was provided in
subsequent submissions during the period from October 2009 to June 2011. The modified version of
the restructuring plan was submitted on 11 July 2011 (hereinafter ‘modified restructuring plan’). The
financial projections contained in the initial restructuring plan with the related updates are briefly
described below.
( 22 ) Commission Decision of 27 October 2008 in case N 512/08 German bank rescue scheme (OJ C 293, 15.11.2008, p. 2),
as amended by Commission Decision of 12 December 2008 in case N 625/08 German bank rescue scheme, extended
by Commission Decision of 22 June 2009 in case N 330/09 (OJ C 160, 14.7.2009, p. 4).

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L 225/8
EN
Official Journal of the European Union
21.8.2012
(50) The
initial
restructuring
plan
projected
a
decrease
of
EUR [30] billion in 2009 to around EUR [35] billion
[around 20 %] in the net interest income for the
in 2014, of which some EUR [20] billion would be
period 2009 to 2014, from EUR [1,4] billion approxi
mainly US dollar-financed shipping assets. In the
mately to EUR [1,1] billion approximately. In respect of
modified restructuring plan the projected segment
the components of the financial results, HSH projected
assets of the sector bank and the shipping assets in
an increase in net income before restructuring (and after
2014 were revised to EUR [20-25] billion and EUR 15
loan loss provisions) for the core bank ( 23 ) of more than
billion respectively. As compared with the initial restruc
200 % between 2009 and 2014, from approximately
turing plan the aviation business line was discontinued in
EUR [350] million to approximately EUR [1,1] billion.
the modified restructuring plan.
The projected net income before restructuring of
approximately EUR [1,1] billion in 2014 included a
positive effect of approximately EUR [100] million
from reversing loan loss provisions. The net fee income
(53) The
projected
Tier
1
capital
ratio
in
the
initial
restruc
and the trading result each represented [some 20 %] of
turing plan was [around 10] % in 2014 and was revised
the net income before restructuring costs of the core
to a projected level of [10-15] % in the modified restruc
bank in 2014. In the modified restructuring plan the
turing plan.
projected net income before restructuring for 2014 was
revised to EUR [350-450] million, with net fee income
and trading result representing [10-15] %.
(54) In the initial restructuring plan the bank provided a
breakdown per projected source of funding for some
EUR [100] billion in 2014 of funded balance sheet (of
(51) The
initial restructuring plan projected a total asset
which [around EUR 25 billion] of unsecured wholesale
reduction for HSH from approximately EUR [175]
funding), leaving a gap of some EUR [50] billion as
billion in 2009 to approximately EUR [150] billion in
against the projected total assets of EUR around [150]
2014. The initial restructuring plan projected an increase
billion. In the modified restructuring plan, the gap
in the assets of the core bank from approximately EUR
between the projected total assets and the projected
[100] billion in 2009 to approximately EUR [110]
total liabilities was reduced and HSH provided
billion in 2014. The 2014 projected total assets for
information on sources of funding to be used to cover
HSH and for the core bank were revised to EUR 120
the funding needs resulting from the gap.
billion and EUR 82 billion respectively in the modified
restructuring plan.
(55) The
growth
assumptions
in
the
main
segments
of
activity
(52) According to the initial restructuring plan the segment
of HSH as presented in the initial restructuring plan and
assets of the sector bank comprising shipping, energy
the assumptions adjusted in the modified restructuring
and transport were projected to increase from around
plan are presented in the table below.
Table 5
Comparison growth rates shipping and corporate
Segment
Initial restructuring plan
Modified restructuring plan
(1 September 2009)
(11 July 2011)
Comment on growth assumption in modified restructuring plan
Shipping Growth
rate
of
new
business
Growth rate of new business The growth rate is based on an annual absolute volume of new
around [250] % from 2010 [90-130] % from 2010 IST - business of EUR […] billion on average from 2011 to 2014. It
IST - 2014 (some [40] % 2014 ([…] % CAGR)
compares to a total market volume of around EUR [25] billion of
CAGR)
new business on average over the period
Corporate Growth
in
loan
volume
Growth in loan volume […] % That growth corresponds to an absolute volume amount of new
[around 100] % (2010 IST – (2010 IST – 2014)
business of EUR […] billion over four years and compares to total
2014)
assets in that segment of EUR 25,7 billion as of 31 December 2008
4.2. GENERAL DESCRIPTION OF THE MODIFIED RESTRUC
characterised by reduced risk, a stronger focus on
TURING PLAN
regional business, and sustainability on the funding and
lending sides. The planned and already initiated restruc
(56) The modified restructuring plan was submitted on
turing measures include, besides the focus on core
11 July 2011. It comprises substantial changes to
business activities and consequently the divestment or
HSH’s business model. The new business model is
cessation of various activities and major holdings, the
adaptation of the branch network and optimisation of
the cost structure. The modified restructuring plan
( 23 ) Following the creation of the restructuring unit, the bank was split
includes the establishment of an internal restructuring
into two divisions, the restructuring unit and the core bank. The
unit in which activities that will not be continued will
core bank is the unit actively engaged in business operations as the
be concentrated for accounting and organisational
restructuring unit is in wind-down. Eventually the bank will be
purposes. The key points of the new business model are:
reduced to its core bank.

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EN
21.8.2012 Official
Journal
of
the
European
Union L
225/9
(a) a reorientation towards a viable core bank by way of
The branches or representations in Copenhagen,
a substantial assets reduction, a strengthening of
Paris, Amsterdam and Moscow are to be closed by
regional business (corporates in Germany, real
2012. After the restructuring period HSH will keep
estate business in Germany and private banking)
six branches or representations in London, Hong
and the retention of core competencies in selected
Kong, New York, Singapore, Luxembourg and
international business activities with a strong
Athens. However, the branches in London,
regional connection (shipping and renewable
Luxembourg and New York will be reduced and
energies, with a focus on Europe);
the branch in Hong Kong transformed into a repre
sentative office.
(b) the exclusive focusing of the capital market business
on treasury activities and customer-related business,
(57) The
regional
focus
comprises
in
particular
the
northern
especially in the role of a supplier of products to
German corporate business and private banking, the real
other business units (cross-selling); proprietary
estate business and the savings bank business. In
trading has been discontinued;
addition, HSH will concentrate on selected areas of inter
national ship financing as well as on project financing in
renewable energy with a focus on Europe as well as
certain investments in infrastructure. HSH will close the
(c) the cessation of activities that are not in line with the
office in Lübeck by the end of 2011.
strategic refocusing of HSH, i.e. the international
Leverage Buy Out (LBO) business, foreign real estate
business, asset-based aircraft financing and other
credit business without a clear connection to the
(58) Overall,
the
balance
sheet
total
of
the
new
core
bank
will
core competency;
be reduced substantially, in particular through transfer of
assets from the core bank to the internal RU. At the end
of the restructuring period on 31 December 2014 HSH
(core bank) will have a balance sheet total of EUR 82
(d) the divestment of all subsidiaries that are not in line
billion. Compared to the balance sheet total of
with the strategic refocusing of HSH; the modified
EUR 208 billion in 2008, this amounts to a reduction
restructuring plan entails the divestment of [100-
of EUR 126 billion, i.e. almost 61 %.
120] holdings in total; HSH has already reduced
the number of holdings by 25; all sales are
expected to happen by […] at the latest;
(59) The
modified
restructuring
plan
is
based
on general
assumptions about the evolution of the German, euro
area, US and global GDP, short-term and long-term
(e) a clear separation of the discontinued businesses to
interest rates changes, euro area and US inflation, oil
be reduced or sold in the internal restructuring unit;
prices and the EUR/USD exchange rate. The projections
the restructuring unit will not engage in any new
of the individual business units are based on assumptions
business;
about the growth rates of the relevant market, volumes
and margins on new production per segment and cross-
selling capacity. Given the importance of the shipping
unit in the overall financial results of HSH, HSH has
(f) a significant adaptation of the national and inter
provided sector-specific assumptions on the evolution
national branches. The run-off of non-strategic
of the shipping market. The projections on the
activities will result in the closure of 15 out of 21
evolution of the size of the market in terms of global
international branches. The branches or represen
new business (aggregated for the bulk, container and
tation offices in Helsinki, Shanghai, Mumbai,
tanker segments), the size of the new business of HSH
Stockholm, Naples, Oslo, Riga, Tallinn, Warsaw,
and the market share of HSH are presented in the table
San Francisco and Hanoi have already been closed.
below.
Table 6
Assumptions on ship financing 2011–2014
Average
2005–2008
2009 2010 2011 2012 2013 2014
Total global new business shipping (in
109,4 25,9 48,3 [10-15] [15-25] [25-35] [40-50]
EUR billion)
New business HSH (in EUR billion) 6,7 0,2
1 [0,5-1,5] [0,5-1,5] [1-2] [2-3]
Market share HSH (%) 6,1 0,8 2,1 About
[4] About
[5] About
[5] About
[5]

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L 225/10
EN
Official Journal of the European Union
21.8.2012
(60) HSH
is
assuming
an
average
EUR/USD
exchange
rate
of
(66) To
support
the
funding
situation
the
business
unit
will
[1,30-1,50]. It has provided sensitivity data on the
increasingly aim to acquire deposits and to use financing
impact of changes in the assumptions on profit and
structures that enable syndications, are eligible as ECB
loss and its net liquidity position, and in particular a
collateral or can be passed on to investors.
sensitivity analysis for changes in the interest rates and
for changes in the EUR/USD exchange rate. The outcome
of the sensitivity analysis is that HSH would not suffer
losses beyond what it can absorb in the event of
significant differences in interest rates and EUR/USD
Real estate
exchange rate assumptions. Moreover, HSH’s liquidity
(67) The
balance
sheet
of
the
core
bank’s
real
estate
business
position would not be negative if the EUR/USD
unit will be reduced from EUR 30,5 billion in 2008 to
exchange rate were to vary considerably compared to
EUR [9-18] billion in 2014. This amounts to a reduction
the base case assumption.
of [50-70] %.
(61) HSH
furthermore
provided
an
adverse
and
worst
case
scenario for the group based on less favourable market
(68) HSH will offer all types of loan products and any other
assumptions. The financial projections in the adverse and
bank products that are relevant for real estate companies.
worst case scenario show that the impact of stress on the
The bank will focus on business in northern Germany
solvency of HSH is buffered through the structure of the
and in German metropolitan regions. The main emphasis
risk shield. In an adverse scenario HSH would delay the
will be put on financing solutions for […] and project
partial cancellations of the guarantee and thus limit the
financing with a manageable degree of risk. In the real-
RWA increase due to the negative economic
estate line of business, HSH will concentrate on the
environment. In both scenarios, the resulting Tier 1
financing of […]. Special property classes will be
capital ratio of HSH would remain at around 10 %
financed only selectively.
during the restructuring period.
(69) Activities in other countries – including the international
4.3. DESCRIPTION OF THE RESTRUCTURING OF THE
real-estate business, which consists of supporting German
INDIVIDUAL BUSINESS UNITS OF HSH
clients in European metropolitan regions – will be
discontinued. In these areas, HSH will not carry out
Corporates
any new business and the existing business will expire.
(62) The
balance
sheet
total
of
the
core
bank’s
corporates
business unit will be reduced from EUR 26,3 billion in
2008 to EUR [10-20] billion in 2014. In total, the unit
will be reduced by about [45-55] % during that period.
(70) HSH will focus mainly on professional real estate
investors with a focus on existing clients and on
selected real estate developers and customers with a
sustainable real-estate track record and a high potential
(63) In
the
corporates
business
unit
HSH
will
offer
financing
for cross-selling, as well as customers connected to
to larger medium-sized undertakings, most notably in the
northern Germany with a need for complex financing
core region of northern Germany.
structures. HSH will continue to use structures and
products that reduce the funding need, e.g. business
eligible for covered bonds, ECB-eligible loans, or
funding and sureties provided by the Kreditanstalt für
Wiederaufbau (KfW).
(64) HSH
has
ceased
its
activities
in
the
refinancing
of
leasing
companies and the international LBO business and will
discontinue its relationship-driven business with
corporate customers in Asia and Scandinavia. The
corporates business unit will not provide asset-based
Savings banks
financing of aircraft or ships. However, the ability of
HSH to support regional business in the core region
(71) The
balance
sheet
of
the
core
bank’s
savings
banks
will not be curtailed.
business unit will be reduced from EUR 8,7 billion in
2008 to EUR [< 3] billion in 2014, in particular by
reducing refinancing activities for savings banks.
(65) HSH
will
focus
primarily
on
larger
medium-sized
busi
nesses in the region of northern Germany as well as
German companies within defined core industries. It
(72) This
business
unit’s
customer
base
is
composed
primarily
will have a clear focus on profitable business as well as
of savings banks and public-sector customers in northern
on customers with a good credit standing and a dem